Valamar Riviera d.d (ZGSE:RIVP) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Valamar Riviera d.d (ZGSE:RIVP) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Valamar Riviera d.d, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.056 = €47m ÷ (€953m - €117m) (Based on the trailing twelve months to September 2024).

Therefore, Valamar Riviera d.d has an ROCE of 5.6%. In absolute terms, that's a low return but it's around the Hospitality industry average of 4.9%.

View our latest analysis for Valamar Riviera d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Valamar Riviera d.d's ROCE against it's prior returns. If you're interested in investigating Valamar Riviera d.d's past further, check out this free graph covering Valamar Riviera d.d's past earnings, revenue and cash flow.

What Does the ROCE Trend For Valamar Riviera d.d Tell Us?

Valamar Riviera d.d's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 40% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Valamar Riviera d.d's ROCE

To bring it all together, Valamar Riviera d.d has done well to increase the returns it's generating from its capital employed. And with a respectable 51% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Valamar Riviera d.d (of which 1 is significant!) that you should know about.

While Valamar Riviera d.d isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.